In conversation with Mr. Pranay Jindal, Director Sales at Toppr, India we tried to understand the rise of the Indian EduFin industry, backed by the booming EdTech sector. We also discussed the effect of pandemic and the future going forward.

"The EdTech sector went forward by at least 4 years during COVID-19. This revolution was always meant to happen, it just happened sooner"

Q. What is the current stage (Nascent/Growing/Maturity) of the EdTech market in India? What do you believe are the growth factors and the challenges in EdTech market?

The Indian EdTech market has been around for a while, but it has finally entered into a growth stage with COVID coming into the picture. COVID has worked like a catalyst and hence led to an increase in traffic. Now, this does not necessarily mean increased revenue generation, but yes, a drastic increase in traffic. Secondly, the investors are drawn to this space because of healthy EBITDA margins demonstrated in this space in the past 3 years.

Coming to the challenges, I would say that the biggest barrier in today’s time is meeting the expectations of consumer’s needs and desires. They’re seeking offline features in an online environment such as one-on-one interaction, on the spot doubt clarification, etc. which are economically and financially not viable. This is because in an offline mode you always have an issue of accessibility, whereas the whole world can access you online, so the economics just doesn't add up.

This is why technology will play a huge role in the growth of the EdTech Industry in coming 10 years. I am talking about core technology such as Artificial Intelligence, Machine Learning etc. which has not yet disrupted the EdTech market. Till now, it’s merely been a transmission of content and a bit of personalization based on a few consumer behavior data points. But the true impact of technology will be felt in the coming 10 years.

As far as the target audience is concerned, a very healthy percentage is being catered to. However, we must look EdTech in two different ways - free users and paid users. Around 70-80% of free users come from Tier 2 & 3 cities, whereas, 60-70% of paid users can be attributed to Tier 1 cities.

Now this disparity exists due to various reasons, one of which being lower penetration at the taluka or village level, which is limiting the accessibility of content. We still haven’t cracked vernacular content for state boards, despite players like Vidyakul and Pariksha who are specifically targeting Tier 3 cities. Another reason is that the price points and the buying pattern is very different in these areas. Most people will not be willing to pay 50k-60k even through EMIs. So to tackle this, sachet courses and pay as you go models would be needed. Currently the content is verbose and requires large server capacities. However, going forward, what will be needed to penetrate this market is more crisp content which could also be accessed via social media platforms such as Whatsapp.

I would say the EdTech revolution had already started before COVID, but COVID has accelerated the industry by a minimum of 3-4 years and definitely it's now headed in the right direction as it was earlier, but at a much faster pace. The reason for that is that people have felt that need for being able to access resources apart from school which provides better quality content. Schools are now just playing the role of a gatekeeper, but as far as knowledge and learning is concerned, they contribute to less than 50% in the child’s overall learning. Schools themselves have started promoting online learning and now they can never go back to 100% physical learning.

According to me, you will never see an India, where online learning is not playing at least 30-40% role in a Child’s learning and development.

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No, as of now I would say that the regulatory challenges could only occur in terms of adherence to the curriculum. However, I don't think that there would be any disruption due to introduction of regulations in terms of mode of delivery.

Coming on to the Chinese regulatory impact on our market, I don’t see any direct impact on the Indian market at the moment.

The Edtech industry is looked upon in 2 ways - traffic and revenue. Now even though traffic may have peaked during the lockdown when we had the 2nd wave around April - May of ‘21. But in terms of revenue, EdTech did not perform as expected. Reason being education to an extent is still considered as a discretionary spend in our country. However, I think at this time, each and every EdTech company is logging its best numbers and it's just going to grow from here on. This growth could easily be ~25-30% Y-o-Y, with ~30% aggregate growth rate over the next 5-6 years.

Currently, one of the biggest trend is to deal with vernacular content - a lot of regional players are coming up, especially in the South. So there will be a lot of consolidation that would happen in the industry over the next 5-6 years, and eventually investors will realize that there is room for only four to five major players in this market.

Q. Who are the major players operating in the EduFin Industry? What are the major parameters on which the EduFin companies are competing? What is the current market share of these companies? 

There are a lot of players like Early Salary, Zest Money, Capital Float, Bajaj Finserv, etc. Even though there are multiple EMI partners now, it is too early to actually determine a market leader. I think this industry is still at a nascent stage because there’s no clear idea about NPAs, delinquency rates etc. Everybody is just taking a risk, and exploring different avenues. But I think in the next 2-3 years we'll understand where this industry is heading, and again there will be a lot of consolidation here as well, because there are so many players right now. In fact more than consolidation, I think a lot of them might even shut down.

None of these loan providers are actually assessing the child's capability while giving out a loan. I'm not saying that this should be a dependent factor, however, if the child is performing well, I would definitely want to make sure that I support that family if in case they miss out on one EMI. I am yet to see such an EdTech specific EMI model come out.

As for the parameters on which the EduFin players are competing, the major factor is providing service to both - the EdTech partner as well as the end customer availing the loan. What really matters is how quickly you can disburse the loan, what the user/partner experience is.

As a trend, Indian’s preference has always been mobile.

The only issue post COVID in becoming a paid subscriber is the fact that people have incurred significant financial losses in the form of medical expenses or with businesses and establishments shutting down. But that's the only reason why people are not putting their money on the table. Otherwise people are more than willing, because the need is always there.

Even if schools reopen, it'll be in a phased manner. This disease is not going anywhere, and even if schools reopen themselves it would propagate the online model because you can't have kids studying in school till 19:00 o'clock. So what do they do after 15:00 o'clock? They obviously need some kind of learning online, which they are used to anyways, but now the schools are willing to pay for it, and pass that cost further to the students as part of the school fees.

The need for quality education is much higher in Tier 2 and Tier 3 cities as compared to Tier 1 cities. In Tier 1 cities, the school tuition fee is already high and you tend to not pay for an additional dedicated tuition fee until the child is in a senior class or you feel the child really needs some remedial classes. However, In Tier 2 cities, generally the quality of education is poor, so they're more open to exploring other platforms.

I think post K12 is going to be a huge growth driver - everybody has kind of seen this K12 revolution and people have now started to pick up vocational courses and short skilling courses. I think that there will be a lot of B2B partnerships as well which are coming up, so it's a very exciting space where content providers will aggregate with technology providers, and further with platform providers in the medium term and it's going to play out quite beautifully.

Secondly, the pre K-12 education has still not been cracked by any major player. Because the content is very different and centred around sensory and overall mental development - holistic development.

Yes, Toppr also has various financial partners - Finance peer, Early salary, Shopse, Credit fair, etc. There are lot of these players in the market right now.

However, these collaborations are very one sided right now. I think the EdTech companies are currently dictating the terms, which is not really healthy for the industry. Bajaj Finance is one player where thankfully it's a balanced equation. But as mentioned earlier, I'm yet to see a product which is specifically designed for EdTech. I think Fintech is a few years behind EdTech and there's still a lot of work to be done in this space.

Once Fintech catches up with EdTech, then probably we can say that they're both at equal footholds and we can have a balance, because right now it's not there.

Yes, the collaboration between the companies are such that EdTech companies do end up paying the interest cost, but that's essentially the cost of acquisition. That is what we call the subvention rate, which is ~6-7% at an industry level. A very small percent of the revenue is used for this cost ~3-4%

Tier-1 cities are accounting for majority of the percentage in terms of Paid users. However, that number is shifting rapidly, and Tier-2 is eventually going to overtake the Tier-1 cities as they reach a state of saturation in terms of growth. But obviously right now it's not the case, and Tier-1 cities are predominant, because accessibility and reach is still an issue within the country.

The K-12 segment would constitute around 30-35%, whereas the test prep sector would be easily around 35 to 40% and Post K12 constitutes only a very small portion of the overall market. These number would predominantly remain the same according to my understanding, and we will witness a similar trend even as the industry unfolds going forward.

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